filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollar and share data amounts in thousands, except par value)
| September 30, 2022 | March 31, 2022 | ||||||||||
| ASSETS | (AUDITED) | ||||||||||
| Cash and cash equivalents | $ | 419,259 | $ | 843,527 | |||||||
| Trade accounts receivable, net of allowances ($37,234 and $30,591 as of September 30, 2022, and March 31, 2022, respectively) | 434,674 | 302,688 | |||||||||
| Inventories | 925,043 | 506,796 | |||||||||
| Prepaid expenses | 36,151 | 25,610 | |||||||||
| Other current assets | 73,781 | 55,264 | |||||||||
| Income tax receivable | 24,377 | 18,243 | |||||||||
| Total current assets | 1,913,285 | 1,752,128 | |||||||||
| Property and equipment, net of accumulated depreciation ($298,831 and $282,571 as of September 30, 2022, and March 31, 2022, respectively) (Note 11) | 221,308 | 222,449 | |||||||||
| Operating lease assets | 164,794 | 182,459 | |||||||||
| Goodwill | 13,990 | 13,990 | |||||||||
| Other intangible assets, net of accumulated amortization ($78,760 and $79,061 as of September 30, 2022, and March 31, 2022, respectively) | 38,552 | 39,688 | |||||||||
| Deferred tax assets, net | 60,410 | 64,217 | |||||||||
| Other assets | 54,010 | 57,319 | |||||||||
| Total assets | $ | 2,466,349 | $ | 2,332,250 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Trade accounts payable | $ | 482,928 | $ | 327,487 | |||||||
| Accrued payroll | 37,032 | 67,553 | |||||||||
| Operating lease liabilities | 46,886 | 50,098 | |||||||||
| Other accrued expenses | 87,624 | 81,400 | |||||||||
| Income tax payable | 39,340 | 12,426 | |||||||||
| Value added tax payable | 34,814 | 2,720 | |||||||||
| Total current liabilities | 728,624 | 541,684 | |||||||||
| Long-term operating lease liabilities | 150,259 | 171,972 | |||||||||
| Income tax liability | 45,801 | 54,259 | |||||||||
| Other long-term liabilities | 25,826 | 25,510 | |||||||||
| Total long-term liabilities | 221,886 | 251,741 | |||||||||
| Commitments and contingencies (Note 5) | |||||||||||
| Stockholders' equity | |||||||||||
| Common stock ($0.01 par value; 125,000 shares authorized; shares issued and outstanding of 26,481 and 26,982 as of September 30, 2022, and March 31, 2022, respectively) | 265 | 270 | |||||||||
| Additional paid-in capital | 219,113 | 210,825 | |||||||||
| Retained earnings | 1,348,823 | 1,352,685 | |||||||||
| Accumulated other comprehensive loss (Note 8) | (52,362) | (24,955) | |||||||||
| Total stockholders' equity | 1,515,839 | 1,538,825 | |||||||||
| Total liabilities and stockholders' equity | $ | 2,466,349 | $ | 2,332,250 |
See accompanying notes to the condensed consolidated financial statements.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollar and share data amounts in thousands, except per share data)
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales (Note 2, Note 10, and Note 11) | $ | 875,614 | $ | 721,902 | $ | 1,490,075 | $ | 1,226,580 | |||||||||||||||
| Cost of sales | 453,693 | 354,814 | 773,402 | 598,989 | |||||||||||||||||||
| Gross profit | 421,921 | 367,088 | 716,673 | 627,591 | |||||||||||||||||||
| Selling, general, and administrative expenses | 294,090 | 238,907 | 532,501 | 437,578 | |||||||||||||||||||
| Income from operations (Note 10) | 127,831 | 128,181 | 184,172 | 190,013 | |||||||||||||||||||
| Interest income | (1,884) | (460) | (3,098) | (942) | |||||||||||||||||||
| Interest expense | 1,038 | 913 | 2,090 | 1,809 | |||||||||||||||||||
| Other (income) expense, net | (241) | 48 | (740) | (185) | |||||||||||||||||||
| Total other (income) expense, net | (1,087) | 501 | (1,748) | 682 | |||||||||||||||||||
| Income before income taxes | 128,918 | 127,680 | 185,920 | 189,331 | |||||||||||||||||||
| Income tax expense (Note 4) | 27,394 | 25,617 | 39,547 | 39,144 | |||||||||||||||||||
| Net income | 101,524 | 102,063 | 146,373 | 150,187 | |||||||||||||||||||
| Other comprehensive (loss) income, net of tax | |||||||||||||||||||||||
| Unrealized gain on cash flow hedges | 1,088 | 1,033 | 1,846 | 2,491 | |||||||||||||||||||
| Foreign currency translation loss | (13,529) | (2,537) | (29,253) | (644) | |||||||||||||||||||
| Total other comprehensive (loss) income, net of tax | (12,441) | (1,504) | (27,407) | 1,847 | |||||||||||||||||||
| Comprehensive income | $ | 89,083 | $ | 100,559 | $ | 118,966 | $ | 152,034 | |||||||||||||||
| Net income per share | |||||||||||||||||||||||
| Basic | $ | 3.83 | $ | 3.69 | $ | 5.49 | $ | 5.42 | |||||||||||||||
| Diluted | $ | 3.80 | $ | 3.66 | $ | 5.46 | $ | 5.37 | |||||||||||||||
| Weighted-average common shares outstanding (Note 9) | |||||||||||||||||||||||
| Basic | 26,517 | 27,651 | 26,646 | 27,731 | |||||||||||||||||||
| Diluted | 26,682 | 27,896 | 26,815 | 27,978 |
See accompanying notes to the condensed consolidated financial statements.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(amounts in thousands)
| Six Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||
| Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 26,982 | $ | 270 | $ | 210,825 | $ | 1,352,685 | $ | (24,955) | $ | 1,538,825 | ||||||||||||||||||||||||
| Stock-based compensation | 1 | — | 3,735 | — | — | 3,735 | |||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | (43) | — | — | (43) | |||||||||||||||||||||||||||||
| Repurchases of common stock (Note 8) | (384) | (4) | — | (99,989) | — | (99,993) | |||||||||||||||||||||||||||||
| Net income | — | — | — | 44,849 | — | 44,849 | |||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | — | (14,966) | (14,966) | |||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 26,599 | 266 | 214,517 | 1,297,545 | (39,921) | 1,472,407 | |||||||||||||||||||||||||||||
| Stock-based compensation | 1 | — | 6,779 | — | — | 6,779 | |||||||||||||||||||||||||||||
| Shares issued upon vesting | 27 | — | 1,046 | — | — | 1,046 | |||||||||||||||||||||||||||||
| Exercise of stock options | 27 | — | 1,830 | — | — | 1,830 | |||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | (5,059) | — | — | (5,059) | |||||||||||||||||||||||||||||
| Repurchases of common stock (Note 8) | (173) | (1) | — | (50,246) | — | (50,247) | |||||||||||||||||||||||||||||
| Net income | — | — | — | 101,524 | — | 101,524 | |||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | — | (12,441) | (12,441) | |||||||||||||||||||||||||||||
| Balance, September 30, 2022 | 26,481 | $ | 265 | $ | 219,113 | $ | 1,348,823 | $ | (52,362) | $ | 1,515,839 | ||||||||||||||||||||||||
| Six Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||
| Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 27,910 | $ | 279 | $ | 203,310 | $ | 1,257,379 | $ | (16,743) | $ | 1,444,225 | ||||||||||||||||||||||||
| Stock-based compensation | 1 | — | 5,469 | — | — | 5,469 | |||||||||||||||||||||||||||||
| Exercise of stock options | 1 | — | 69 | — | — | 69 | |||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | (85) | — | — | (85) | |||||||||||||||||||||||||||||
| Repurchases of common stock (Note 8) | (249) | (2) | — | (82,164) | — | (82,166) | |||||||||||||||||||||||||||||
| Net Income | — | — | — | 48,124 | — | 48,124 | |||||||||||||||||||||||||||||
| Total other comprehensive income | — | — | — | — | 3,351 | 3,351 | |||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 27,663 | 277 | 208,763 | 1,223,339 | (13,392) | 1,418,987 | |||||||||||||||||||||||||||||
| Stock-based compensation | 1 | — | 6,288 | — | — | 6,288 | |||||||||||||||||||||||||||||
| Shares issued upon vesting | 36 | — | 914 | — | — | 914 | |||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | (9,195) | — | — | (9,195) | |||||||||||||||||||||||||||||
| Repurchases of common stock (Note 8) | (133) | (1) | — | (53,806) | — | (53,807) | |||||||||||||||||||||||||||||
| Net income | — | — | — | 102,063 | — | 102,063 | |||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | — | (1,504) | (1,504) | |||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 27,567 | $ | 276 | $ | 206,770 | $ | 1,271,596 | $ | (14,896) | $ | 1,463,746 | ||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
| Six Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income | $ | 146,373 | $ | 150,187 | |||||||
| Reconciliation of net income to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation, amortization, and accretion | 23,018 | 19,931 | |||||||||
| Amortization on cloud computing arrangements | 1,001 | 767 | |||||||||
| Bad debt expense (benefit) | 4,444 | (10) | |||||||||
| Deferred tax expense (benefit) | 788 | (3,239) | |||||||||
| Stock-based compensation | 10,550 | 11,792 | |||||||||
| Loss on disposal of long-lived assets | 24 | 23 | |||||||||
| Impairment of operating lease and other long-lived assets | 1,068 | — | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivable, net | (136,430) | (154,633) | |||||||||
| Inventories | (418,247) | (358,028) | |||||||||
| Prepaid expenses and other current assets | (22,791) | (10,942) | |||||||||
| Income tax receivable | (6,134) | (7,505) | |||||||||
| Net operating lease assets and lease liabilities | (4,057) | 5,947 | |||||||||
| Other assets | 2,308 | (28,387) | |||||||||
| Trade accounts payable | 157,155 | 256,028 | |||||||||
| Other accrued expenses | (14,688) | (37,673) | |||||||||
| Income tax payable | 26,915 | (19,729) | |||||||||
| Other long-term liabilities | (8,143) | 2,797 | |||||||||
| Net cash used in operating activities | (236,846) | (172,674) | |||||||||
| INVESTING ACTIVITIES | |||||||||||
| Purchases of property and equipment | (24,254) | (26,719) | |||||||||
| Net cash used in investing activities | (24,254) | (26,719) | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Proceeds from issuance of stock | 1,046 | 914 | |||||||||
| Proceeds from exercise of stock options | 1,830 | 69 | |||||||||
| Repurchases of common stock | (150,240) | (135,973) | |||||||||
| Cash paid for shares withheld for taxes | (5,102) | (9,280) | |||||||||
| Net cash used in financing activities | (152,466) | (144,270) | |||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | (10,702) | 513 | |||||||||
| Net change in cash and cash equivalents | (424,268) | (343,150) | |||||||||
| Cash and cash equivalents at beginning of period | 843,527 | 1,089,361 | |||||||||
| Cash and cash equivalents at end of period | $ | 419,259 | $ | 746,211 | |||||||
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
(continued)
| Six Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| SUPPLEMENTAL CASH FLOW DISCLOSURE | |||||||||||
| Cash paid during the period | |||||||||||
| Income taxes, net of refunds of $1,124 and $71, as of September 30, 2022, and 2021, respectively | $ | 29,242 | $ | 74,312 | |||||||
| Interest | 901 | 936 | |||||||||
| Operating leases | 17,589 | 28,470 | |||||||||
| Non-cash investing activities | |||||||||||
| Change in accounts payable and other accrued expenses for purchases of property and equipment | (2,516) | 5,959 | |||||||||
| Accrued for asset retirement obligation assets related to leasehold improvements | 803 | 3,505 | |||||||||
| Leasehold improvements acquired through tenant allowances | — | 4,061 | |||||||||
See accompanying notes to the condensed consolidated financial statements.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Note 1. General
The Company. Deckers Outdoor Corporation and its wholly owned subsidiaries (collectively, the Company) is a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyle use and high-performance activities. As part of its omni-channel platform, the Company's proprietary brands are aligned across its Fashion Lifestyle group, including the UGG and Koolaburra brands, and Performance Lifestyle group, including the HOKA, Teva, and Sanuk brands.
The Company sells its products through domestic and international retailers, international distributors, and directly to its global consumers through its DTC business, which is comprised of its retail stores and e‑commerce websites. Independent third-party contractors manufacture all of the Company's products. A significant part of the UGG brand business has historically been seasonal, requiring the Company to build inventory levels during certain quarters in its fiscal year to support higher selling seasons, which has contributed to the variation in its results from quarter to quarter. However, as the Company continues to take steps to diversify and expand its product offerings by creating more year-round styles, and as net sales of the HOKA brand continue to increase as a percentage of our aggregate net sales, the Company expects the impact from seasonality to continue to decrease over time.
Basis of Presentation. The unaudited condensed consolidated financial statements and accompanying notes thereto (referred to herein as condensed consolidated financial statements) as of September 30, 2022 and for the three and six months ended September 30, 2022 and 2021 (the prior period) are prepared in accordance with generally accepted accounting principles in the US (US GAAP) for interim financial information pursuant to Rule 10-01 of Regulation S-X issued by the SEC. Accordingly, the condensed consolidated financial statements do not include all the information and disclosures required by US GAAP for annual financial statements and accompanying notes thereto. The condensed consolidated balance sheet as of March 31, 2022, is derived from the Company's audited consolidated financial statements. In the opinion of management, the condensed consolidated financial statements include all normal and recurring entries necessary to fairly present the results of the interim periods presented but are not necessarily indicative of actual results to be achieved for full fiscal years or other interim periods. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022, which was filed with the SEC on May 27, 2022 (2022 Annual Report).
Consolidation. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates. The preparation of the Company's condensed consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary pressures, on its business and operations. Although the full impact of these factors is unknown and cannot be reasonably estimated, the Company believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date. However, actual results could differ materially from these estimates and assumptions, which may result in material effects on the Company's financial condition, results of operations, and liquidity. To the extent there are differences between these estimates and actual results, the Company's condensed consolidated financial statements may be materially affected.
Significant areas requiring the use of management estimates and assumptions relate to inventory write-downs; trade accounts receivable allowances, including variable consideration for net sales provided to customers; contract assets and liabilities; stock-based compensation; impairment assessments, including for goodwill, other intangible assets, and long-lived assets; depreciation and amortization; income tax receivables and liabilities; uncertain tax positions; the fair value of financial instruments; the reasonably certain lease term; lease classification; and the Company's incremental borrowing rate utilized to measure its operating lease assets and lease liabilities.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Reportable Operating Segments. The Company's six reportable operating segments include the worldwide wholesale operations for each of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands, as well as DTC (collectively, the Company's reportable operating segments). Refer to Note 10, “Reportable Operating Segments,” for further information on the Company's reportable operating segments.
Impairment of Operating Lease and Other Long-Lived Assets. During the six months ended September 30, 2022, the Company recorded impairment charges of $1,068, within its DTC reportable operating segment in selling, general, and administrative (SG&A) expenses in the condensed consolidated statements of comprehensive income for retail store related operating lease assets and leasehold improvements (asset group). These impairment charges were due to underperformance of certain retail stores that resulted in the carrying value exceeding the estimated fair value of the asset group, which is determined based on an estimate of the discounted future cash flows for the asset group. For the six months ended September 30, 2021, the Company recorded no impairment charges on operating lease and other long-lived assets.
Recent Accounting Pronouncements. The Financial Accounting Standards Board has issued Accounting Standard Updates (ASU) that have not yet been adopted by the Company for its annual and interim reporting periods, as stated below.
Not Yet Adopted. The following is a summary of each ASU issued that is applicable to and has not yet been adopted, as well as the planned period of adoption, and the expected impact on the Company upon its adoption:
| Standard | Description | Planned Period of Adoption | Expected Impact Upon Adoption | |||||||||||||||||
| ASU No. 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (as amended by ASU 2021-01) | London Interbank Offered Rate (LIBOR) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of calendar year 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. This ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Guidance is limited for adoption through December 31, 2022. | Q3 FY 2023 | The Company has evaluated the impact of the adoption of this ASU on its revolving credit facilities, lease agreements, and cash flow hedges; however, the Company does not expect that the adoption will have a material impact on its condensed consolidated financial statements. |
Note 2. Revenue Recognition
Revenue is recognized when a performance obligation is completed at a point in time and when the customer has obtained control. Control passes to the customer when they have the ability to direct the use of, and obtain substantially all the remaining benefits from, the goods transferred. The amount of revenue recognized is based on the transaction price, which represents the invoiced amount less known actual amounts or estimates of variable consideration.
Variable Consideration. Components of variable consideration include estimated sales discounts, markdowns or chargebacks, and sales returns. Estimates for variable consideration are based on the amounts earned or estimates to be claimed as an adjustment to sales. Estimated variable consideration is included in the transaction price to the extent it is probable that a significant reversal of the cumulative revenue recognized will not occur in a future period. The Company's customer contracts do not have a significant financing component due to their short durations, which are typically effective for one year or less and have payment terms that are generally 30 to 60 days.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Sales Return Asset and Liability. Reserves are recorded for anticipated future returns of goods shipped prior to the end of the reporting period. In general, the Company accepts returns for damaged or defective products for up to one year. The Company also has a policy whereby returns are generally accepted from customers and end consumers between 30 to 90 days from the point of sale for cash or credit. The amounts of these reserves are determined based on several factors, including known and actual historical returns and any recent events that could result in a change from historical return rates. Sales returns are a refund asset for the right to recover the inventory and a refund liability for the stand-ready right of return. Changes to the refund liability are recorded against gross sales and changes to the refund asset for the right to recover the inventory are recorded against cost of sales in the condensed consolidated statements of comprehensive income. The refund liability is recorded in other accrued expenses and the related asset for the right to recover the inventory is recorded in other current assets in the condensed consolidated balance sheets.
Activity during the six months ended September 30, 2022, related to estimated sales returns were as follows:
| Recovery Asset | Refund Liability | ||||||||||
| Balance, March 31, 2022 | $ | 11,491 | $ | (39,867) | |||||||
| Net additions to sales return liability* | 26,444 | (84,336) | |||||||||
| Actual returns | (24,378) | 82,497 | |||||||||
| Balance, September 30, 2022 | $ | 13,557 | $ | (41,706) |
Activity during the six months ended September 30, 2021, related to estimated sales returns were as follows:
| Recovery Asset | Refund Liability | ||||||||||
| Balance, March 31, 2021 | $ | 10,704 | $ | (37,717) | |||||||
| Net additions to sales return liability* | 11,861 | (46,731) | |||||||||
| Actual returns | (14,348) | 58,532 | |||||||||
| Balance, September 30, 2021 | $ | 8,217 | $ | (25,916) |
***Net additions to the sales return liability include a provision for anticipated sales returns, which consists of both contractual return rights and discretionary authorized returns.
Contract Liabilities. Contract liabilities are performance obligations that the Company expects to satisfy or relieve within the next 12 months, advance consideration obtained prior to satisfying a performance obligation, or unconditional obligations to provide goods or services under non-cancelable contracts before the transfer of goods or services to the customer has occurred. Contract liabilities are recorded in other accrued expenses in the condensed consolidated balance sheets.
Loyalty Programs. The Company has a loyalty program for the UGG brand in its DTC channel where consumers can earn rewards from qualifying purchases or activities. The Company defers recognition of revenue for unredeemed awards until one of the following occurs: (1) rewards are redeemed by the consumer, (2) points or certificates expire, or (3) an estimate of the expected unused portion of points or certificates is applied, which is based on historical redemption patterns. The Company’s contract liability for loyalty programs is recorded in other accrued expenses in the condensed consolidated balance sheets.
Activity during the six months ended September 30, 2022, related to loyalty programs were as follows:
| Amounts | |||||
| Balance, March 31, 2022 | $ | (10,883) | |||
| Redemptions and expirations for loyalty certificates and points recognized in net sales | 9,585 | ||||
| Deferred revenue for loyalty points and certificates issued | (10,106) | ||||
| Balance, September 30, 2022 | $ | (11,404) |
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Activity during the six months ended September 30, 2021, related to loyalty programs were as follows:
| Amounts | |||||
| Balance, March 31, 2021 | $ | (12,231) | |||
| Redemptions and expirations for loyalty certificates and points recognized in net sales | 11,752 | ||||
| Deferred revenue for loyalty points and certificates issued | (10,901) | ||||
| Balance, September 30, 2021 | $ | (11,380) |
Deferred Revenue. Revenue is deferred for wholesale channel transactions when certain conditions outlined within the contract terms, including the transfer of control or delivery of product, has not occurred, such as when a wholesale channel customer prepays for ordered product. The contract liability for deferred revenue is recorded in other accrued expenses in the condensed consolidated balance sheets.
Activity during the six months ended September 30, 2022, related to deferred revenue were as follows:
| Amounts | |||||
| Balance, March 31, 2022 | $ | (15,804) | |||
| Additions of customer cash payments | (31,503) | ||||
| Revenue recognized | 28,589 | ||||
| Balance, September 30, 2022 | $ | (18,718) |
Activity during the six months ended September 30, 2021, related to deferred revenue were as follows:
| Amounts | |||||
| Balance, March 31, 2021 | $ | (5,425) | |||
| Additions of customer cash payments | (32,007) | ||||
| Revenue recognized | 16,098 | ||||
| Balance, September 30, 2021 | $ | (21,334) |
Refer to Note 10, “Reportable Operating Segments,” for further information on the Company's disaggregation of revenue by reportable operating segment.
Note 3. Fair Value Measurements
The accounting standard for fair value measurements provides a framework for measuring fair value, which is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy under this accounting standard requires an entity to maximize the use of observable inputs, where available.
The following summarizes the three levels of inputs required:
-
Level 1: Quoted prices in active markets for identical assets and liabilities.
-
Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities.
-
Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring the Company to develop its own assumptions.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, trade accounts receivable, net, trade accounts payable, accrued payroll, and other accrued expenses, approximates fair value due to their short-term nature. When the Company makes short-term borrowings, the carrying amounts, which are considered Level 2 liabilities, approximates fair value based upon current rates and terms available to the Company for similar debt. The Company does not currently have any Level 3 assets or liabilities. Assets and liabilities that are measured on a recurring basis at fair value in the condensed consolidated balance sheets are as follows:
| As of | Measured Using | ||||||||||||||||||||||
| September 30, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Money-market funds | $ | 241,926 | $ | 241,926 | $ | — | $ | — | |||||||||||||||
| Non-qualified deferred compensation asset | 7,179 | 7,179 | — | — | |||||||||||||||||||
| Non-qualified deferred compensation liability | (9,716) | (9,716) | — | — | |||||||||||||||||||
| Designated Derivative Contracts asset | 2,436 | — | 2,436 | — | |||||||||||||||||||
| Non-Designated Derivative Contracts asset | 1,916 | — | 1,916 | — | |||||||||||||||||||
| As of | Measured Using | ||||||||||||||||||||||
| March 31, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Money-market funds | $ | 524,063 | $ | 524,063 | $ | — | $ | — | |||||||||||||||
| Non-qualified deferred compensation asset | 8,933 | 8,933 | — | — | |||||||||||||||||||
| Non-qualified deferred compensation liability | (9,573) | (9,573) | — | — | |||||||||||||||||||
The carrying value of money-market funds approximates the fair value as it is considered a highly liquid investment with an original maturity of three months or less when purchased. Money-market funds are recorded in cash and cash equivalents in the condensed consolidated balance sheets.
The Company sponsors an unfunded, non-qualified deferred compensation plan (NQDC Plan) that permits certain members of its management team the opportunity to defer compensation into the NQDC Plan. A rabbi trust was established as a reserve for benefits payable under the NQDC Plan, with the assets invested in Company-owned life insurance policies. Deferred compensation is recognized based on the fair value of the participants' accounts. As of September 30, 2022, the non-qualified deferred compensation asset of $7,179 is recorded in other assets in the condensed consolidated balance sheets. As of September 30, 2022, the non-qualified deferred compensation liability of $9,716 is recorded in the condensed consolidated balance sheets, with $737 in other accrued expenses and $8,979 in other long-term liabilities. As of March 31, 2022, the non-qualified deferred compensation asset of $8,933 is recorded in other assets in the condensed consolidated balance sheets. Further, the non-qualified deferred compensation liability of $9,573 is recorded in the condensed consolidated balance sheets, with $936 in other accrued expenses and $8,637 in other long-term liabilities.
The fair value of foreign currency forward or option contracts are determined using quoted forward spot rates at the end of the applicable reporting period from counterparties, which are corroborated by market-based pricing (Level 2). The fair values of assets and liabilities associated with derivative instruments and hedging activities are recorded in other current assets and other accrued expenses, respectively, in the condensed consolidated balance sheets. Refer to Note 7, “Derivative Instruments,” for further information, including definitions of the terms Designated Derivative Contracts and Non-Designated Derivative Contracts.
The Company's non-financial assets, such as other long-lived assets and definite-lived intangible assets, which include operating lease assets, machinery and equipment, leasehold improvements, and definite-lived trademarks; as well as indefinite-lived intangible assets and goodwill, are not required to be carried at fair value on a recurring basis and are reported at carrying value. Instead, these assets are tested for impairment annually, or when an event occurs or changes in circumstances indicate the carrying value may not be recoverable. When determining fair value, Level 3 measurements are used for the estimates and assumptions, including undiscounted future cash flows expected to be generated by the asset groups based upon historical experience, expected market conditions, as well and management's plans.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Note 4. Income Taxes
Income tax expense and the effective income tax rate were as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Income tax expense | $ | 27,394 | $ | 25,617 | $ | 39,547 | $ | 39,144 | |||||||||||||||
| Effective income tax rate | 21.2 | % | 20.1 | % | 21.3 | % | 20.7 | % |
The tax provisions during the three and six months ended September 30, 2022, and 2021 were computed using the estimated effective income tax rate applicable to each of the domestic and foreign taxable jurisdictions for the fiscal years ending March 31, 2023 (current fiscal year), and March 31, 2022, respectively, and were adjusted for discrete items that occurred within the periods presented above.
During the three months ended September 30, 2022, the net increase in the effective income tax rate, compared to the prior period, was primarily due to changes in jurisdictional mix of worldwide income before income taxes as well as reduced net discrete tax benefits, primarily due to deductions for stock-based compensation.
During the six months ended September 30, 2022, the net increase in the effective income tax rate, compared to the prior period, was primarily due to changes in jurisdictional mix of worldwide income before income taxes, partially offset by increased net discrete tax benefits, primarily due to foreign return to provision adjustments and deductions for stock-based compensation.
Note 5. Commitments and Contingencies
Leases. The Company primarily leases retail stores, showrooms, offices, and distribution facilities under operating lease contracts. Some of the Company's operating leases contain extension options between one to 15 years. Historically, the Company has not entered into finance leases and its lease agreements generally do not contain residual value guarantees, options to purchase underlying assets, or material restrictive covenants.
Supplemental information for amounts presented in the condensed consolidated statements of cash flows related to operating leases, was as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Non-cash operating activities | |||||||||||||||||||||||
| Operating lease assets obtained in exchange for lease liabilities* | $ | 7,002 | $ | 12,930 | $ | 13,209 | $ | 26,294 | |||||||||||||||
| Reductions to operating lease assets for reductions to lease liabilities* | (132) | (243) | (408) | (624) |
*Amounts disclosed include non-cash additions or reductions resulting from lease remeasurements.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Operating lease liabilities recorded in the condensed consolidated balance sheets exclude an aggregate of $58,313 of undiscounted minimum lease payments due pursuant to leases signed but not yet commenced. These leases are primarily for the following:
-
additional space for the Company's US warehouse and DC in Mooresville, Indiana with an initial lease term of ten years, which the Company expects to be operational in the third quarter of its fiscal year ending March 31, 2024 (next fiscal year);
-
a new international UGG brand flagship retail store in Munich, Germany with an initial term of five years, which the Company expects to be opened in the first quarter of its next fiscal year; and,
-
a new HOKA brand retail store in New York City with an initial lease term of five years, which the Company expects to be opened in the second quarter of its next fiscal year.
Litigation. From time to time, the Company is involved in various legal proceedings, disputes, and other claims arising in the ordinary course of business, including employment, intellectual property, and product liability claims. Although the results of these matters cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on its business, results of operations, financial condition, or cash flows. However, regardless of the outcome, these ordinary course matters can have an adverse impact on the Company because of legal costs, diversion of management time and resources, and other factors.
Note 6. Stock-Based Compensation
From time to time, the Company grants various types of stock-based compensation under the 2015 Stock Incentive Plan (2015 SIP), including time-based restricted stock units (RSUs), performance-based restricted stock units (PSUs), and long-term incentive plan PSUs (LTIP PSUs), to key personnel, including employees and directors. During the six months ended September 30, 2022, no additional awards were granted under the 2015 SIP, with the exception of the RSUs and LTIP PSUs awards summarized below. Refer to Note 8, “Stock-Based Compensation,” of our consolidated financial statements in Part IV of our 2022 Annual Report for further information on previously granted awards under the 2015 SIP.
Annual Awards. The Company granted the following awards under the 2015 SIP during the periods presented, which are recorded in the condensed consolidated statements of comprehensive income:
| Six Months Ended September 30, | ||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
| Shares Granted | Weighted-average grant date fair value per share | Shares Granted | Weighted-average grant date fair value per share | |||||||||||||||||||||||
| RSUs | 47,545 | $ | 334.74 | 37,764 | $ | 386.69 | ||||||||||||||||||||
RSUs are subject to time-based vesting criteria and typically vest in equal annual installments over three years following the date of grant. PSUs are typically earned based on the achievement of pre-established Company performance criteria measured over the fiscal year during which they are granted, and, to the extent the performance criteria are met, vest in equal annual installments over three years thereafter.
Stock-based compensation is recorded net of estimated forfeitures in SG&A expenses in the condensed consolidated statements of comprehensive income. Future unrecognized stock-based compensation for annual awards, including RSUs and PSUs outstanding as of September 30, 2022, was $22,098.
Long-Term Incentive Plan Awards. During the six months ended September 30, 2022, the Company approved awards under the 2015 SIP for the issuance of PSUs (2023 LTIP PSUs), which were awarded to certain members of the Company's management team, including the Company's named executive officers and vice presidents. The 2023 LTIP PSUs are subject to vesting based on service conditions over either two or three years. The Company must meet certain revenue and pre-tax income performance targets individually over three reporting periods for the fiscal years ending March 31, 2023, 2024, and 2025 (collectively, the Measurement Periods). The 2023 LTIP PSUs incorporate a relative total stockholder return (TSR) modifier for both the 24-month performance period (commencing April 1, 2022) ending March 31, 2024 and the 36-month performance period (commencing April 1, 2022) ending March 31, 2025 (collectively, the Performance Periods). To the extent financial performance is achieved above the threshold levels for each of these performance criteria, the number of 2023 LTIP PSUs that vest will increase up to a maximum of 200% of the targeted amount for that award. No vesting of any portion of the 2023 LTIP PSUs will occur if the Company fails to achieve the pre-established minimum revenue and pre-tax income amounts for each reporting period. Following the determination of the Company’s achievement with respect to the revenue and pre-tax income criteria for the Measurement Periods, the vesting of each 2023 LTIP PSU will be subject to adjustment based on the application of the TSR modifier. The amount of the adjustment will be determined based on a comparison of the Company's TSR relative to the TSR of a pre-determined set of peer group companies for the Performance Periods. A Monte-Carlo simulation model was used to determine the grant date fair value by simulating a range of possible future stock prices for the Company and each member of the peer group over the Performance Periods.
The Company granted awards of 32,735 2023 LTIP PSUs at the target performance level during the six months ended September 30, 2022. The weighted-average grant date fair value per share of these 2023 LTIP PSUs was $387.44. Based on the Company's current long-range forecast, the Company determined that the achievement of at least the minimum threshold target performance criteria was probable as of September 30, 2022.
Future unrecognized stock-based compensation for the current performance attainment level of all LTIP PSUs outstanding as of September 30, 2022, including the 2023 LTIP PSUs discussed above, the 2022 LTIP PSUs, and the 2021 LTIP PSUs, is $21,556.
Note 7. Derivative Instruments
The Company enters into foreign currency forward or option contracts (derivative contracts), generally with maturities of 15 months or less, to manage foreign currency risk and certain of these derivative contracts are designated as cash flow hedges of forecasted sales (Designated Derivative Contracts). The Company may also enter into derivative contracts that are not designated as cash flow hedges (Non-Designated Derivative Contracts), to offset a portion of anticipated gains and losses on certain intercompany balances until the expected time of repayment. The Company does not use derivative contracts for trading purposes.
The after-tax unrealized gains or losses from changes in fair value of Designated Derivative Contracts are recorded as a component of accumulated other comprehensive loss (AOCL) and are reclassified to net sales in the condensed consolidated statements of comprehensive income in the same period or periods as the related sales are recognized. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and the accumulated gains or losses in AOCL related to the hedging relationship are immediately recorded in other comprehensive income (OCI) in the condensed consolidated statements of comprehensive income. The Company includes all hedge components in its assessment of effectiveness for its derivative contracts.
Changes in the fair value of Non-Designated Derivative Contracts are recorded in SG&A expenses in the condensed consolidated statements of comprehensive income. The changes in fair value for these contracts are generally offset by the remeasurement gains or losses associated with the underlying foreign currency-denominated intercompany balances, which are recorded in SG&A expenses in the condensed consolidated statements of comprehensive income.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
As of September 30, 2022, the Company has the following derivative contracts recorded at fair value in the condensed consolidated balance sheets:
| Designated Derivative Contracts | Non-Designated Derivative Contracts | Total | |||||||||||||||
| Notional value | $ | 26,713 | $ | 31,044 | $ | 57,757 | |||||||||||
| Fair value recorded in other current assets | 2,436 | 1,916 | 4,352 | ||||||||||||||
As of September 30, 2022, the Company's outstanding derivative contracts are held by an aggregate of three counterparties, all with various maturity dates within the next six months. As of March 31, 2022, the Company has no outstanding derivative contracts.
The following table summarizes the effect of Designated Derivative Contracts and the related income tax effects of unrealized gains or losses recorded in the condensed consolidated statements of comprehensive income for changes in AOCL:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Gain recorded in Other comprehensive income | $ | 1,805 | $ | 2,125 | $ | 2,805 | $ | 4,049 | |||||||||||||||
| Reclassifications from Accumulated other comprehensive loss into net sales | (369) | (762) | (369) | (762) | |||||||||||||||||||
| Income tax expense in Other comprehensive income | (348) | (330) | (590) | (796) | |||||||||||||||||||
| Total | $ | 1,088 | $ | 1,033 | $ | 1,846 | $ | 2,491 |
The following table summarizes the effect of Non-Designated Derivative Contracts recorded in the condensed consolidated statements of comprehensive income:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Gain recorded in SG&A expenses | $ | 1,836 | $ | 413 | $ | 1,916 | $ | 748 |
The non-performance risk of the Company and the counterparties did not have a material impact on the fair value of its derivative contracts. As of September 30, 2022, the amount of unrealized gains on derivative contracts recorded in AOCL is expected to be reclassified into net sales within the next six months. Refer to Note 8, “Stockholders' Equity,” for further information on the components of AOCL.
Note 8. Stockholders' Equity
Stock Repurchase Program. The Company's Board of Directors has approved various authorizations under the Company's stock repurchase program to repurchase shares of its common stock, including a July 27, 2022 approval to increase its stock repurchase authorization by $1,200,000, (collectively, the stock repurchase program). The stock repurchase program does not obligate the Company to acquire any amount of common stock and may be suspended at any time at the Company's discretion. As of September 30, 2022, the aggregate remaining approved amount under the stock repurchase program is $1,503,767.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Stock repurchase activity under the Company's stock repurchase program during the six months ended September 30, 2022, was as follows:
| Amounts | |||||
| Total number of shares repurchased* | 557,675 | ||||
| Weighted average price paid per share | $ | 269.41 | |||
| Dollar value of shares repurchased** | $ | 150,240 |
*All share repurchases were made pursuant to our publicly announced stock repurchase program in open-market transactions.
** May not calculate on rounded dollars.
Subsequent to September 30, 2022, through October 13, 2022, the Company repurchased 15,002 shares at a weighted average price of $333.21 per share for $4,999 and had $1,498,768 remaining authorized under the stock repurchase program.
Accumulated Other Comprehensive Loss. The components within AOCL, net of tax, recorded in the condensed consolidated balance sheets are as follows:
| September 30, 2022 | March 31, 2022 | ||||||||||
| Unrealized gain on cash flow hedges | $ | 1,846 | $ | — | |||||||
| Cumulative foreign currency translation loss | (54,208) | (24,955) | |||||||||
| Total | $ | (52,362) | $ | (24,955) |
Note 9. Basic and Diluted Shares
The reconciliation of basic to diluted weighted-average common shares outstanding was as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Basic | 26,517,000 | 27,651,000 | 26,646,000 | 27,731,000 | |||||||||||||||||||
| Dilutive effect of equity awards | 165,000 | 245,000 | 169,000 | 247,000 | |||||||||||||||||||
| Diluted | 26,682,000 | 27,896,000 | 26,815,000 | 27,978,000 | |||||||||||||||||||
| Excluded | |||||||||||||||||||||||
| RSUs and PSUs | 45,000 | 2,000 | 47,000 | 10,000 | |||||||||||||||||||
| LTIP PSUs | 115,000 | 145,000 | 115,000 | 145,000 | |||||||||||||||||||
| Deferred Non-Employee Director Equity Awards | 2,000 | — | 2,000 | — | |||||||||||||||||||
Excluded Awards. The equity awards excluded from the calculation of the dilutive effect have been excluded due to one of the following: (1) the shares were antidilutive; (2) the necessary conditions had not been satisfied for the shares to be deemed issuable based on the Company's performance for the relevant performance period; or (3) the Company recorded a net loss during the period presented (such that inclusion of these equity awards in the calculation would have been anti-dilutive). The number of shares stated for each of these excluded awards is the maximum number of shares issuable pursuant to these awards. For those awards subject to the achievement of performance criteria, the actual number of shares to be issued pursuant to such awards will be based on Company performance in future periods, net of forfeitures, and may be materially lower than the number of shares presented, which could result in a lower dilutive effect, respectively.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Note 10. Reportable Operating Segments
Information reported to the Chief Operating Decision Maker (CODM), who is the Company's Chief Executive Officer (CEO), President, and Principal Executive Officer (PEO), is organized into the Company's six reportable operating segments and is consistent with how the CODM evaluates performance and allocates resources. The Company does not consider international operations to be a separate reportable operating segment, and the CODM reviews such operations in the aggregate with the reportable operating segments.
Segment Net Sales and Income from Operations. The Company evaluates reportable operating segment performance primarily based on net sales and income (loss) from operations. The wholesale operations of each brand are generally managed separately because each requires different marketing, research and development, design, sourcing, and sales strategies. The income (loss) from operations of each of the reportable operating segments includes only those costs which are specifically related to each reportable operating segment, which consist primarily of cost of sales, research and development, design, sales and marketing, depreciation, amortization, and the direct costs of employees within those reportable operating segments. The Company does not allocate corporate overhead costs or non-operating income and expenses to reportable operating segments, which include unallocable overhead costs associated with the Company's warehouses and DC's, certain executive and stock-based compensation, accounting, finance, legal, information technology (IT), human resources, and facilities, among others. Inter-segment sales from the Company’s wholesale reportable operating segments to the DTC reportable operating segment are at the Company’s cost, and there is no inter-segment profit on these inter-segment sales, nor are they reflected in income (loss) from operations of the wholesale reportable operating segments as these transactions are eliminated in consolidation.
Reportable operating segment information, with a reconciliation to the condensed consolidated statements of comprehensive income, was as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| UGG brand wholesale | $ | 361,305 | $ | 348,776 | $ | 499,167 | $ | 483,832 | |||||||||||||||
| HOKA brand wholesale | 223,035 | 146,980 | 454,920 | 298,127 | |||||||||||||||||||
| Teva brand wholesale | 19,587 | 19,211 | 66,482 | 62,570 | |||||||||||||||||||
| Sanuk brand wholesale | 5,060 | 7,020 | 15,786 | 17,402 | |||||||||||||||||||
| Other brands wholesale | 27,559 | 23,253 | 29,552 | 27,559 | |||||||||||||||||||
| Direct-to-Consumer | 239,068 | 176,662 | 424,168 | 337,090 | |||||||||||||||||||
| Total | $ | 875,614 | $ | 721,902 | $ | 1,490,075 | $ | 1,226,580 |
| Income (loss) from operations | |||||||||||||||||||||||
| UGG brand wholesale | $ | 112,083 | $ | 121,701 | $ | 142,748 | $ | 157,539 | |||||||||||||||
| HOKA brand wholesale | 63,576 | 43,294 | 133,192 | 89,657 | |||||||||||||||||||
| Teva brand wholesale | 2,737 | 4,908 | 15,230 | 19,411 | |||||||||||||||||||
| Sanuk brand wholesale | 350 | 1,523 | 2,816 | 4,927 | |||||||||||||||||||
| Other brands wholesale | 5,837 | 8,158 | 5,368 | 10,865 | |||||||||||||||||||
| Direct-to-Consumer | 59,936 | 38,734 | 101,156 | 78,417 | |||||||||||||||||||
| Unallocated overhead costs | (116,688) | (90,137) | (216,338) | (170,803) | |||||||||||||||||||
| Total | $ | 127,831 | $ | 128,181 | $ | 184,172 | $ | 190,013 |
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Segment Assets. Assets allocated to each reportable operating segment include trade accounts receivable, net; inventories; property and equipment, net; operating lease assets, goodwill, other intangible assets, net; and certain other assets that are specifically identifiable for one of the Company's reportable operating segments. Unallocated assets are those assets not directly related to a specific reportable operating segment and generally include cash and cash equivalents, deferred tax assets, net; and various other corporate assets shared by the Company's reportable operating segments. Assets allocated to each reportable operating segment, with a reconciliation to the condensed consolidated balance sheets, are as follows:
| September 30, 2022 | March 31, 2022 | ||||||||||
| Assets | |||||||||||
| UGG brand wholesale | $ | 789,998 | $ | 382,837 | |||||||
| HOKA brand wholesale | 410,616 | 293,025 | |||||||||
| Teva brand wholesale | 65,338 | 91,140 | |||||||||
| Sanuk brand wholesale | 40,917 | 40,766 | |||||||||
| Other brands wholesale | 70,671 | 32,429 | |||||||||
| Direct-to-Consumer | 201,538 | 191,193 | |||||||||
| Total assets from reportable operating segments | 1,579,078 | 1,031,390 | |||||||||
| Unallocated cash and cash equivalents | 419,259 | 843,527 | |||||||||
| Unallocated deferred tax assets, net | 60,410 | 64,217 | |||||||||
| Unallocated other corporate assets | 407,602 | 393,116 | |||||||||
| Total | $ | 2,466,349 | $ | 2,332,250 |
Note 11. Concentration of Business
Regions and Customers. The Company sells its products globally to customers and end consumers in various countries, with net sales concentrations as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| International net sales | $ | 257,905 | $ | 207,267 | $ | 487,851 | $ | 375,886 | |||||||||||||||
| % of net sales | 29.5 | % | 28.7 | % | 32.7 | % | 30.6 | % | |||||||||||||||
| Net sales in foreign currencies | $ | 193,130 | $ | 158,548 | $ | 302,071 | $ | 247,981 | |||||||||||||||
| % of net sales | 22.1 | % | 22.0 | % | 20.3 | % | 20.2 | % | |||||||||||||||
| Ten largest global customers as % of net sales | 40.1 | % | 35.5 | % | 30.1 | % | 31.6 | % |
For the three and six months ended September 30, 2022, and 2021, no single foreign country comprised 10.0% or more of the Company's total net sales.
For the three months ended September 30, 2022, one single global customer accounted for 10.0% or more of the Company's net sales, compared to no single global customers for the three months ended September 30, 2021. For the six months ended September 30, 2022 and 2021, no single global customer accounted for 10.0% or more of the Company's net sales.
As of September 30, 2022, the Company has two customers that represent 22.2% of trade accounts receivable, net, compared to one customer that represents 11.2% of trade accounts receivable, net, as of March 31, 2022. Management performs regular evaluations concerning the ability of the Company’s customers to satisfy their obligations to the Company and recognizes an allowance for doubtful accounts based on these evaluations.
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Suppliers. The Company's production is concentrated at a limited number of independent manufacturing factories, primarily in Asia. Sheepskin is the principal raw material for certain UGG brand products and most of the Company's sheepskin is purchased from two tanneries in China, which is sourced primarily from Australia and the United Kingdom (UK). The Company believes significant factors affecting the price of sheepskin include weather patterns, harvesting decisions, incidence of disease, the price of other commodities such as wool and leather, the demand for the Company's products and the products of its competitors, the use of substitute products or components, and global economic conditions.
Long-Lived Assets. Long-lived assets, which consist of property and equipment, net, recorded in the condensed consolidated balance sheets, are as follows:
| September 30, 2022 | March 31, 2022 | ||||||||||
| United States | $ | 205,877 | $ | 208,078 | |||||||
| Foreign* | 15,431 | 14,371 | |||||||||
| Total | $ | 221,308 | $ | 222,449 |
*No single foreign country’s property and equipment, net, represents 10.0% or more of the Company’s total property and equipment, net, as of September 30, 2022, and March 31, 2022.
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